German bonds are seen as one of the safest assets in the Eurozone, and steadily growing demand in recent months had threatened to push the yield into negative territory.
The steep reversal of that trend last week is shown in the chart below by the orange line, which highlights the fall in the yield over the last 12 months. This contrasts with the Dax, which has posted a 15 per cent gain in 2015 so far, continuing its strong run since September 2011. Until late April, faith in German blue chips was in inverse proportion to long-term confidence in the Eurozone economy.
Since then, concerns over the ongoing Greek debt crisis has been blamed for the index’s flat performance, but it will be interesting to see whether increased volatility in the bond markets will precipitate capital flight to equities, or whether further signals of improving consumer sentiment will benefit the Dax’s constituents.
